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StreetAccount Summary - Asia Pacific-ex Japan Monthly Recap (January 2024)

Jan 31 ,2024

• Overview:

  • Asia equity markets saw another highly polarized performance in January, as Greater China benchmarks touched fresh multi-year lows while India and Japan indices reached record highs. Regional catalysts centered on China, where disappointing economic and property data was met with limited structural support measures as Beijing instead focused on moves to shore up its capital markets. However, even those efforts had little effect as the Hang Seng suffered its sixth consecutive monthly decline, and its worst performance within the sequence to trade at 15-month lows and briefly below 15K. Mainland indices fell to lows not seen since the height of the Covid pandemic. Hong Kong's market-cap heavy property sector was also dealt a late blow with a winding up order handed out to China Evergrande.

  • In other regional developments, December PMIs showed emerging Asia's factory output growth had either slowed or contracted further, including in India, which expanded at the slowest pace in 18 months. The Bank of Korea tempered expectations of an early rate cut just as the government moved to introduce measures to quash inflation by year end. Singapore's MAS maintained monetary policy as expected. China demographic data showed its population shrank for a second year in a row in 2023. And domestic politics dominated headlines in many places including Taiwan, where democrats won the presidency but lost their parliamentary majority.

  • The MSCI Asia Pac-ex Japan index was 4.9% lower as Hong Kong markets closed on Wednesday with all main Asia-ex Japan markets seeing losses. Japan's Nikkei and Topix reached record highs mid-month before fading slightly. Aside from Greater China's steep losses, South Korea's Kospi also saw sharp falls as its EV battery stocks tumbled alongside global EV stocks, and its chip stocks disappointed on earnings. By contrast, Taiwan's Taiex outperformed albeit with a small loss. India's Nifty and Sensex indices dipped slightly just as the RBI said it would not consider rate cuts until inflation was below 4%. Southeast Asia gave up some of Q4-23's gains although the Philippines was a bright spot as Q4-23 GDP data surprised on the upside. In the currency markets, waning hopes of a US rate cut in the near term sent the US dollar higher, pressing on Asia currencies already concerned over China's economy, slowing manufacturing and declining trade. Regional currencies weakened almost everywhere with underperformance in the yen, the baht, and the Australian and New Zealand dollars. The Taiwan and Singapore dollars outperformed. The yuan also weakened slightly but was a relative outperformer as reports emerged of substantial state-owned bank activity in the forex swaps market. The rupee was the exception to the weakening trend amid ongoing intervention by the RBI. Bond markets were quiet as yield on the JGB gained over the month while that on the China 10Y slipped to its lowest since 2002 on increased talk of PBOC easing.

• Catalysts:

  • China's economic growth metrics disappoint:

    • China's economic data posted in January again showed stagnant growth in the wider economy, and sharp declines in the construction and property sectors. FY 2023 GDP growth of 5.2% was its lowest since 1990 (ex the Covid years), and, while December activity data showed stable consumption, it also revealed dire property-related investment and another steep decline in home prices. A tick higher in unemployment will worry Beijing too. Official manufacturing PMIs fell for the fourth consecutive month in January but the private Caixin PMI reading for December remained expansive; service PMIs continued to expand. December exports grew 2.3% y/y to beat forecasts but exports to the US and regional trading partners contracted again. Consumer inflation fell 0.3% y/y, the third deflationary month in a row, and producer prices also fell again. Private data showed wages fell in Q4, suggesting deflationary pressures may be bedding down.

  • Beijing's response to economic figures muted:

    • China's policymakers responded to the poor economic data with measured supportive responses but still without the consumer stimulus package many economists are looking for. The PBOC kept its MLF and LPR rates unchanged but then surprised with a 50 bps cut to banks' RRRs, effectively injecting CNY1T into financial markets. It also lowered interest rates for loan refinancing at small businesses and agriculture firms by 25 bps. Several regional governments further loosened home-buying restrictions, and the housing ministry said it will give certain housing projects funding support to complete work.

  • Market support measures met with skepticism:

    • Beijing's market support measures cranked up a gear in January. First, the State Council called for capital markets support quickly followed by reports of a potential CNY2T ($278B) direct injection into equity markets via state-owned companies' offshore accounts, and a further CNY300B from local funds into onshore equities. Regulators effectively barred short selling by expanding a stock lending ban, and Shanghai and Shenzhen exchanges also announced a ban on the loan of restricted shares during lock-up periods. There was also evidence of 'national team' banks buying stocks en bloc and reports of CNY1T ($139B) in special sovereign bond issuance. But in sum, the measures were greeted with skepticism as usage details and raw evidence remained opaque. Analysts also questioned the direct market support, saying a sustainable recovery in markets was unlikely given China's structural economic problems, avoidance of a wider stimulus programme, and geopolitical tensions.

  • China Evergrande receives winding-up order from Hong Kong court:

    • Late in January, China Evergrande (3333.HK) was ordered to be liquidated by a Hong Kong court following news that last-minute creditor talks had failed. A liquidator was subsequently appointed but commentary concentrated on whether mainland China courts would acquiesce to orders from a Hong Kong court, while offshore investors would likely have to battle onshore investors for a share of the proceeds. This is likely to highlight the scant legal protection foreign investors have in China, just as pessimism over investing in China is already at a low ebb. China Evergrande stock fell 30% MTD before being suspended, China Evergrande NEV (708.HK) shares were down 53%, before also being suspended.

  • Domestic political tensions ratchet higher:

    • Taiwan's democrat candidate Lai Ching-te won the island's presidential election but his DPP party lost its parliamentary majority as a third group soaked up votes. Beijing's response was muted and highlighted the DPP's reduced share of the vote. Overseas investors are also said to be worried about domestic politics in Thailand, where the government tension with its central bank bubbled to the surface again; in Indonesia, where President Joko incensed members of his own cabinet by supporting an opposition presidential candidate; and in Malaysia, where the coalition government appears increasingly fragile amid a crackdown on graft.

  • RBI won't consider rate cuts until inflation firmly below 4%:

    • The Reserve Bank of India Governor, Shaktikanta Das, said the bank was not even discussing interest rate cuts yet, and would not consider doing so until inflation was "firmly" below 4.0%. He acknowledged inflation had slowed considerably but added the final mile in the inflation fight was proving very difficult. Das also forecast FY GDP growth could reach 7.0% in the next fiscal year, a view later echoed by the finance ministry, and that inflation would average 4.5%. India was well positioned to deal with geopolitical challenges, he added, but global growth was a cause for concern.

  • Country Equity Performance:

    • Equity markets: MSCI Asia Pacific ex Japan, -4.9%; Japan, Nikkei +2.4%, Topix +1.9%; Greater China: CSI 300, -6.7%, Shenzhen, -13.5%, Hang Seng, -9.0%; Australia ASX 200, -2.8%; New Zealand NZX50, -2.4%; South Korea Kospi, -9.0%; Taiwan Taiex, -1.6%; Singapore STI, -4.3%; Malaysia KLCI, +1.2%; Thailand SET, -6.4%; Indonesia JSX, -3.2%, Philippines PSI, +2.2%; India Sensex, -1.4%, Nifty 50 -0.8%.

    • In USD as of 5.15pm HK/SG time 31 January 2024